Onshore Intermediaries Legislation
25 May 2016
Get your CIS Payroll best practices, industry news and advice here!
25 May 2016
In the 2014 budget, with little notice, the government introduced significant changes to the way individuals are taxed when paid through ANY type of intermediaries. This included payments made by a traditional agency supplier, a payroll company, a specialist intermediary suppliers or even a sub-contractor.
The new legislation disregarded the traditional definition of an employment relationship and required all intermediary suppliers to operate PAYE on payments made to all INDIVIDUALS unless they could prove they were not subject to the new test of direction, supervision or control.
To give this new legislation teeth a debt transfer provision was included. This meant that the financial liability for deduction of PAYE was extended up and down the contractual chain with a end-users (and their Directors) potentially being ultimately liable for omissions or failures of intermediate contractors.
One of the consequences of these changes was that the construction industry, with its history of legitimate subcontract chains, found itself exposed to huge new compliance requirements and/or potentially massive tax liabilities.
Act in haste & repent at leisure?
In many cases the Government scare tactic worked. A large number of contractors, becoming aware of the potential exposure, made hasty decisions and unnecessarily moved their businesses to a costly fully employed model. This despite the damage to flexibility and operating margins.
Concerning however is that an equally large number are still not aware of the new laws or have been provided with a perfunctory, ill-informed response by their current agencies or suppliers. We are constantly interacting with contractors where individual business owners are entirely unaware of the transfer of debt provision or the potential, if arrangements are not made correctly, for them to become personally liable for any unpaid tax.
Where are we now?
Two years on, it is almost universally accepted that the arguments are not as cut and dried as the revenue had suggested. Where contractors can demonstrate:
they have actively considered the appropriateness of any arrangement with regards to the tests of supervision, direction or control (SDC), and providing the wording of the contract accurately reflects the operational reality, there are a number of intermediary self-employed models that are fully compliant with the new legislation. HMRC propaganda and guidance is not infallible, the fully employed model is not the only option and well advised contractors are still able to contract relatively freely, to maintain flexibility and to control employment costs. To be clear:
Each arrangement must be considered in isolation and on its merits.
A simple declaration, provided by your existing supplier but signed by you, confirming that your tradesmen are self-employed is most definitely not good enough!
What should you do next?
It is vital for building contractors to understand all of their obligations under the new laws and advisable that they make themselves aware of the range of solutions available to them. Construction Employment Taxation can be a minefield and you should seek professional advice from a specialist lawyer or an organisations like ourselves.
Read our case study